Kully is responsible for Hotel Bardo in Savannah, Georgia, and Left Lane has office conversions projects in various stages of development in Pittsburgh, Pennsylvania, Providence, Rhode Island, Memphis, Tennessee, Bozeman, Montana, and Phoenix, as well as a second property in Savannah. All our scheduled to open between 2026 and early 2028.
All projects will sit under the Bardo luxury brand or Recess lifestyle brand, and Kully raises private equity and deploys capital from limited partners, endowments, family office and foundations. Every deal is financed with debt separately and hold times range from three to five years with the stressed, exiting office owner taking a minority stake in the hotel projects. Geolo Capital is Left Lane’s partner for the Bardo in Savannah, and it raised another vehicle for the other five office conversion projects.
Pittsburgh, Providence and Phoenix will be a combination of hotel and multi-family with shared amenities, and Memphis is multi-family only. Kully said Left Lane is generally doing about 60% hotel keys and 40% multi-family. “We also think that those two asset classes, which were once upon a time disparate, are converging because they think that successful multi-family has a very large hospitality component. “So, really, it’s about duration of stay,” he said.
Deals range from $80 million to $180 million in total costs. Five historic office buildings totaling more than 1.2 million square feet in high-growth secondary cities are acquired for $80 per square foot and a 75% discount to replacement cost. Sourced off-market via a proprietary market and asset selection process, Kully said for every renovation dollar spent, 20% is recouped via historic tax credits.
Kully reinforced the fact that 98% of office buildings around the country will not convert economically to hotels. But with 11 of his 22-person team architecturally trained, they set about this adventure, eyes wide open, and found that the most distressed component of real estate, namely Class B, historic office buildings, happen to be the easiest to purchase at the cheapest price. They are the easiest to convert because they were built before the advent of centralized air conditioning. They also have operable windows and shallow floor plates. “They are literally conceived to convert to multifamily or hospitality,” he said.
Kully and his team look for historic buildings that meet the following criteria: constructed between 1900-1965 with the right light and air dimensions. They are no greater than a 40 feet dimension from the center line of the building to an exterior wall; 10,000-20,000 square feet floorplates; and windows on most or all sides.
By converting distressed office buildings into their highest and best use rather than developing ground up, Kully said Left Lane’s valuation basis in the real estate is attractive. Total cost basis is ~40% below replacement cost for Class-A hotel and multifamily product. Highly accretive state and federal historic tax credits equal ~$68 million across the portfolio or ~21% of hard costs (and other local incentives like tax abatements).
“A lot of people in the real estate development might be financiers. They might like to play in Excel. They might have good taste. But they’re not thinking the way an architect thinks,” Kully explained. “Starting in the late fall of 2020, we set about, like everyone sitting at home scratching their heads, figuring out what the new world is going to look like. Where’s the opportunity? So, we built it. We said we are obsessed with high-growth secondary markets, even though I live in New York and have done half of my work in a gateway markets. We think the future is about high-growth secondary markets because they are very affluent. They’re well-educated people and well-traveled. They have expectation, but unmet demand, and that’s the interesting cross section. You have historic distress around Class B office, and you have unprecedented government incentives to help defray costs.”
